Question: Let c be consumption. Under what conditions on the parameters 0 and 1 could the following functions serve as utility functions for a risk-averse investor?

Let c be consumption. Under what conditions on the parameters λ0 and λ1 could the following functions serve as utility functions for a risk-averse investor? (Remember that marginal utility must be positive and the function must be concave.)
a. U(c) = λ0 exp (λ1c)
b. U(c) = λ0cλ1
c. U(c) = λ0c + λ1c2

Step by Step Solution

3.35 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

We require that marginal utility to be positive and that the second derivative of the util... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

511-B-C-F-R-A-M (970).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!